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NAME AND STATEMENT OF PURPOSE

Northern Waters Smokehaus Eric and Lynn Goerdt, Sole Proprietors Superior, Wisconsin 54880

Statement of Purpose

Northern Waters Smokehaus is committed to providing premium smoked salmon and other quality handmade products to the communities of Superior and Duluth. We are committed to providing a quality of life for the owners and employees and being an asset to the business community in Superior. THE BUSINESS

A. Description Northern Waters Smokehaus (NWS) has been operating in the Superior Business Center since the fall of 1998 and has been built on a flagship product--premium boneless smoked salmon. The business has grown significantly in both wholesale and retail sales of smoked salmon and has been profitable since inception (see chart below). The clientele has been overwhelmingly supportive of the business and express a great appreciation for the quality of the product. No other business in the area offers boneless smoked salmon, thus NWS has filled a niche in the restaurant, catering, and seafood market industries. We are frequently asked to produce other such premium foods, and our customers have enjoyed our offerings. At this time, NWS also offers smoked salmon paté, specialty sausages, and smoked poultry, all of which have been well received.

The Business Center location has been excellent in fostering the wholesale market, but it is not ideally suited for retail trade. NWS is now ready to expand into a space well suited for both wholesale and retail. We will maintain our diverse wholesale accounts while increasing retail in a friendly, bright, clean, functional space, showcasing a variety of premium handcrafted specialty foods. The additional products will be of the same high quality as those produced thus far and will provide variety to the retail customer.

Sales Comparison Year-to-Date 1999 and 2000

6,000 5,500 5,000 4,500 4,000

s 3,500 1999 r a

l 3,000 l

o 2,500 2000 D 2,000 1,500 1,000 500 0 January February March April Month

2 B. Industry Background In the 1970s consumers, began to take an interest in products with natural ingredients, without preservatives and artificial coloring. The trend followed the increase in public concern about harmful additives and the desire to eat healthier. Purchases of such specialty foods have grown to sales of nearly $30 billion per year.1 The demand for specialty fish, particularly smoked salmon and trout, is especially on the rise due to the increased consumer interest in foods with lower fat and cholesterol content.2 It has been shown that foods rich in omega-3 fatty acids, such as salmon, help to reduce bad cholesterol; some nutrition experts recommend eating fish twice a week to reduce heart disease risk.3

C. Location of Business NWS is intending to enter into a lease-to-own arrangement for new space. The facility, to be located on North Tower Avenue in Superior, will be built by a restaurateur who currently owns two other successful restaurants in northern Wisconsin. The smokehouse will be attached to the new restaurant, but will be a separate entity. Connecting to the restaurant will allow for shared parking, which in turn will provide increased traffic and a shared customer base. We are excited about this symbiotic business relationship. The tentative date to begin construction is the end of the summer 2000 with occupancy in spring 2001. (see attachments) We feel that the addition of a quality restaurant and specialty food market in the historic section of downtown Superior will be an asset to the community and serve as a catalyst to new development. The location also allows for easy access for our Duluth customers as it is on the north end of Superior and close to the Blatnik Bridge.

The space will be designed in consultation with NWS and will meet pertinent local, state, and federal regulations.

D. Product/Service Our boneless smoked salmon is unique in that fresh--not frozen-- Atlantic salmon fillets are used. The fillets are then brined using only natural ingredients; some are topped with spices, and then they are dried in a cooler overnight. The following day the salmon is placed in the smokehouse at a low temperature to allow the maple smoke to adhere to the now tacky surface of the fish. This forms a “pellicle” or skin on the fish, which serves to contain moisture as the temperature is increased throughout the smoking process. This method of smoking is referred to as “kippering” and is prevalent in the Pacific Northwest. Eric learned and perfected this process during his six-year stay in Sitka, Alaska. The process yields a moist, succulent, and flavorful smoked fish, which is unique to this area. When the business expands, a variety of products of the same quality will be offered for retail and wholesale. These products have been tested for quality, have a customer- interest base, and have a high profit margin. We feel consumers will choose NWS because of the quality and variety of products offered.

3 In our new location, great importance will be placed on friendly and informative retail service. We will strive to be welcoming and efficient in helping our customers make food-buying decisions. Those behind the counter will have a sharp, clean appearance, and will be knowledgeable of the process and background of all items sold on premises.

E. Regulations NWS is inspected by the Wisconsin Department of Agriculture to ensure that the business complies with state and federal regulations. Eric has been trained and certified in Seafood Hazards Analysis Critical Control Point (HACCP), and the smokehouse operates according to an approved seafood HACCP plan. The salmon is tested quarterly for moisture and salt content, and a record is kept of each batch of smoked fish. A time/temperature chart and smoking process record are also kept to verify that the fish have reached safe internal temperatures during the smoking process. All of these records are available for state and federal inspectors. NWS has been inspected three times and has been found to be compliant with all applicable regulations.

F. Management/Personnel Eric has established himself as a local gourmet since NWS began in 1998. He has strived to establish and maintain products of the highest quality as reflected in the growing customer base. He has also been trained, at a Wisconsin State Department of Agriculture sponsored seminar, in the safe handling of seafood (see attachments). This training, in addition to his culinary skills, and six years living in Southeast Alaska learning the art of “kippered” smoked salmon provide a wonderful knowledge base for this business.

Lynn is a professional planner at the Arrowhead Regional Development Commission and has vast organizational, management, and human service skills (see attachments). She currently acts as accountant and bookkeeper for NWS and performs a great body of the planning work. She intends to utilize a professional accounting consultant on a routine basis but will continue to manage the finances of NWS.

Our goal is to recruit and retain personnel by offering competitive, livable wages with complimenting health and life insurance, and a 401k plan. The average hourly wage for food preparation workers in the Duluth-Superior area as of 1998 was $7.37 and we are planning on a starting wage of $10.4 By achieving this goal, we will maintain stability and quality at NWS as well as provide stability for our employees--a mutually satisfying situation. 1 Hall, Stephen. (1992). From Kitchen to Market: Selling Your Gourmet Food Specialty, Chicago, Illinois: Upstart Publishing Company, page 36. 2 Hall, Stephen. (1992). From Kitchen to Market: Selling Your Gourmet Food Specialty, Chicago, Illinois: Upstart Publishing Company, page 205. 3Mayfield, Eleanor. (1994) “A Consumers Guide to Fats”. FDA Consumer. 4 1998 Occupation Employment States (OES) Wage Survey, March 2000.

4 MARKETING

Overview

A significant number of adult shoppers prefer to purchase fresh foods and will choose to shop at a specialty food market. NWS will create a unique shopping experience for these customers by offering a variety of products under one roof, including some items that are not currently available in the Twin Ports. There is no other smokehouse in the Twin Ports specializing in boneless smoked salmon. By adding a variety of new products such as cheese, fresh seafood, specialty deli meats, marinated meats, and vegetarian sausage, all available at one location, we will be creating a unique specialty food market.

Our competition will include grocery stores, meat markets, and fresh seafood markets; however, none will offer the variety of specialty products offered at NWS. The majority of these businesses are located in Duluth, making the Superior location ideal.

Niche Markets

As of 1992, upscale products that have the greatest growth potential include “value added meat and poultry, seafood, and paté.”1 NWS plans on tapping into this market, by establishing itself as a specialty foods market that is known for its gourmet boneless smoked salmon and other high-quality, value-added products. We will maintain a staple of regional specialties such as Wisconsin cheese, smoked Polish sausage, smoked lake trout, potato sausage, etc. while targeting a more diverse customer base by introducing other unique products such as vegetarian sausage, andouille sausage, chorizo, and Thai marinated chicken. We feel this strategy will attract a wide band of customers interested in handmade and fresh foods.

Current Customers 1999 % Sales NWS has a base of both wholesale and retail customers with approximately 2/3 of the sales from wholesale customers (see chart). Currently, the retail 37% customers are from the Twin Ports, with at least ¾ of Wholesale Retail the customers coming from Duluth. NWS’s retail 63% customers are people who choose to purchase fresh products, particularly fish, deli meats, and sausage; the average customer purchases two pounds. In 1999, NWS also began marketing to corporations for holiday gifts. It was chosen by one of the largest employers in Duluth to provide its holiday gifts and is used on an ongoing basis by another large employer for its gifts.

The current wholesale customers are caterers, restaurants, and food suppliers whose customers expect them to have high-quality, premium foods. Current wholesale accounts

5 include: The Park Bench, Coco’s to Geaux, Allouez Marine, The New Scenic Café, Upper Lakes Foods, Bennets on the Lake, Duluth Entertainment and Convention Bureau, Northland Country Club, Iron River Trout Haus, Fitger’s Brewhouse, Vanilla Bean Café, UMD Catering, and Twin Ports Brewery. Many high-end caterers and restaurants are interested in offering our smoked salmon because it is moist, delicious, boneless, and unique. These are comments from a few of our customers:

“We’ve been doing business with Eric at Northern Waters Smokehaus for over a year. His products and service are superlative. Our customers say that his smoked salmon is the best on the Great Lakes.” James L. Banks - Allouez Marine Supply/Duluth-Superior Ship Chandlery

“Northern Waters Smokehaus is a Godsend to gourmets with a discriminating palate.” Arlene Coco - Professional caterer, cookbook author, and owner of Coco’s to Geaux restaurant in Duluth

“In my seventeen years as an executive chef, this is the best smoked fish I have used. The freshness and quality are superb. Paul Madsen – Executive Chef, Duluth Entertainment and Convention Center

Since the profit margin on retail is significantly higher than wholesale, the expansion will concentrate on increased retail sales while maintaining existing wholesale accounts.

Future Customers

Consumers that purchase fresh meats and deli meats account for approximately 25% of the overall shoppers, spending $737 per year on either meat ($503), deli meats ($129), or fresh fish ($105).2 If the same percentage of the 86,236 adult residents (21,559 people) of the Twin Ports spent 1% of their “fresh food” dollars ($7) at NWS, the annual sales would be $150,913.4

The highest months of sale for specialty meats are those with holidays, particularly November and December and the summer months with the influx of tourists. This was true for NWS in 1999 (see chart) and is a trend realized by other businesses in the Twin Ports. Our product line will vary seasonally to accommodate customers’ desires; for example, in November NWS will offer boneless stuffed turkeys and smoked pheasants while in the summer it will offer fresh marinated salmon for barbecues and picnics.

6 1999 Sales per Month

$22,500 $20,000 s

r $17,500

a $15,000 l l $12,500 Series1 o $10,000

D $7,500 $5,000 $2,500 $0 r r r e r h l t e e n b i y e y s b e b b c r n l u b a e r p a u m m m J a u g e to F A M J J u t e e M p c v c A e O o e S N D Month

Current Marketing NWS recognizes that a strategic marketing plan, both short and long range, is key to a successful retail expansion. To be effective, we intend to build on the current marketing system and significantly increase the use of the Internet, newspaper, magazine, radio, and other cost-efficient marketing strategies. To date, NWS has relied heavily on word-of- mouth advertising with limited paid radio, Internet (see attachments), and print advertising. Superior Business Center personnel have been our biggest and best word-of- mouth advertisers, promoting and selling our products to people who frequent the Center, inquire about the smokehouse, and subsequently purchase from the Office Administrator products that are displayed in a retail cooler. Also, a large number of our retail customers are referrals from other satisfied customers. In addition, The Superior Chamber of Commerce hosted a ribbon-cutting ceremony, which resulted in increased awareness by Chamber members and a full-page article in the Superior Daily Telegram.

Other strategies include placing large magnetic signs on the business vehicle, routinely distributing business cards to all contacts, and listings in the business and yellow page sections of the phone book. We have also participated in three food/trade fairs: the Superior Sportsman Show and two years of the Taste of the Nation.

Future Marketing

NWS plans to build on this basic marketing plan with cost-efficient marketing strategies that include product promotion, direct mail, media relations, and paid advertising in selected local and regional media outlets. We intend to offer daily sampling of products so that the customers become familiar with the different items, and we will have at least one ready-to-eat item such as smoked Polish sausage. We also plan to send news releases to the regional newspapers and initiate coverage of the market in the sections covering the food industry.

7 Product Promotion

NWS will provide product samples with promotional information to strategic local and regional radio and TV personalities as well as local and regional food editors and critics. We will also create partnerships with a local media outlet to benefit a local charity (i.e., advertisement in newspaper with coupon that provides $1 to local charity for anyone who orders the product and mentions the ad).

Direct Mail

We will send a coupon and product information, including testimonials from individuals, to local subscribers of magazines such as The New Yorker, New York Times, Gourmet, and Bon Apetit’. We will also buy lists and send promotional materials to: chamber members, small business owners, local chapters of business associations, caterer/restaurant owners, and other business organizations.

Internet

NWS currently has a website with the Internet address: northernwatersmokehaus. It is set up with a shopping cart for purchases online (see attachments). The use of the Internet has not been a focus of our marketing efforts thus far. However, we intend to build upon the current site as a source of advertising to local customers and for mail order. A specialty product will be highlighted on a weekly basis to attract local customers to the site and to the store. As is common in the service industry, customers will be encouraged to bookmark the site and visit it on a regular basis to see what the “special” is. We will also advertise through regional websites including that for the Superior and Duluth Chambers of Commerce.

Magazine

NWS also intends to continue advertising in Lake Superior Magazine, and begin advertisements in Your Life and The Area Women’s Magazine. All three have a circulation in the thousands and market to the entire region. Lake Superior Magazine also markets to those who frequent the region, including people in Chicago, the Twin Cities, and Milwaukee.

Newspaper

NWS plans on dramatically increasing the amount of newspaper advertising it does, particularly in the first few months. During the opening month in our new location, ads will be placed in the Duluth News Tribune, Superior Daily Telegram, Budgeteer, and Ripsaw. In the News-Tribune and Daily Telegram the ads will be run daily for one week and will then be placed strategically in specific sections of the papers, including the business and food sections.

8 Food/Trade Fairs

For the past two years we have been invited to participate in the Taste of the Nation, a benefit for hunger that features the areas finest food producers and restaurants. We hope to continue our participation and intend to add a food booth at the annual Park Point Art Fair to showcase the smoked salmon.

Lastly, NWS intends to use at least one radio station as an advertising medium. We will choose the station with a customer base similar to ours, and will establish business memberships to Wisconsin and Minnesota public radio stations.

1 Hall, Stephen. (1992). From Kitchen to Market: Selling Your Gourmet Food Specialty, Chicago, Illinois: Upstart Publishing Company, page 31. 2 US Census Data, 1990.

9 FINANCIAL INFORMATION

The attached financial tables reflect a viable business and support our plan for expansion. NWS has been in business for 18 months and has experienced substantial increases in sales with only minimal advertising and a limited product line. With a visible retail location, an expanded product line, and a diverse marketing strategy, we are confident sales projections will be met.

This business plan assumes a new loan for additional expansion, equipment, and inventory in the amount of $22,950. We feel a loan of this amount is of minimal risk considering our strong current asset to current liability ratio. These tables are based on historical records and conservative estimates. The projected profit and loss statement reflects a $36,732 profit, from which Eric will draw his wages.